Utica – The Shale Revolution Coming to Ohio

Although Ohio may not be the first state one may think of when it comes to oil production, in the 1850s, Ohio was actually one of the first states where the oil and gas industry originated. In fact, Standard Oil, the famous oil company of John D. Rockefeller, was established in Ohio in 1870. However, over the past few decades, Ohio’sonce-vibrant oil productionhas been declining. Now that eastern Ohio may be home to Point Pleasant, theliquids-rich “sweet spot”of the Utica shale play, that all may be changing.

The Utica play is a shale rock formation that is speculated by investors, companies, and geologists alike to be the location for the next big boom in American oil and natural gas reservoirs. Located a few thousand feet below the Marcellus shale play, the Utica actually extends much farther geographically, covering a great deal of Pennsylvania, New York, West Virginia and Ohio. Offering natural gas, the Utica is thought to be rich in liquids—especially attractive in this pricing environment. The oil rich portion is focused in eastern Ohio, known as the Point Pleasant formation. The increased supply of oil would be a tremendous boon to our nation’s economy and energy security.

Technological advancements in drilling have now made these once-elusive resources accessible to oil and natural gas companies. With a new supply of energy, come new jobs, government revenues, and economic growth. Thought impossible a few years ago, as Ohio’s privatemanufacturingjobs have fallen more than 35 percent from 2001, the Wall Street Journal recently reportedthat a steel plant has been erected in Youngstown, Ohio to meet the demands of the oil and natural gas industry. This is indicative of what jobs the future holds for Ohio. As in most shale plays, independent oil and natural gas producers are leading the way as pioneers of the Utica shale play. Larger companies are now following suit because of the investor excitement and the huge gains expected there.

Many experts compare the geology of the Utica to that of the Eagle Ford—a promising comparison indeed. Since 2008 alone, the Eagle Ford shale play accounted for 12,601 jobs, added $2.9 billion in total economic output, and added more than $111 million in government revenues. If the prospects of the Utica prove to be as lucrative, the impact on jobs, economic growth, government revenues, and energy security is tremendous. Projections estimate there could be 6,000 to 8,000 jobscreated in the eastern Ohio region alone. In light of this enormous potential,Ohio Governor John Kasich strongly supports drilling: “I believe that we could be at the beginning of a new and extended positive chapter in Ohio’s economy, and it’s essential we properly marshal our economic development, job training, environmental and regulatory assets to make this work right and work well for Ohio.”

Investments are building: Companies, analysts, and investors can only speculate about the future of the Utica shale play because it is in such an early stage of development. What experts are saying is enough to turn the heads of anyone paying attention:

McClendon also projects that over the next few decades 25,000 wells will be drilled in the Utica—that’s a $200 billion investment.

Chesapeake has already acquired 1.25 million acres above the Utica Shale formation in eastern Ohio over the past year and a half. Chief Executive Aubrey McClendon believes this land to be worth $15 billion to $20 billion in increased value to the company.

John Walker, president and chief executive of EV Energy Partners, told investors at IPAA’s Oil and Gas Investment Symposium (OGIS) this year that the Utica “has the promise to be America’s next big shale play.”

This week, John Walker emphasized the “thousands of jobs that we will directly and indirectly create” in Ohio.

In a recent report, Morgan Stanley analysts project the play has the potential to be on par with leading North American liquids-rich targets.

Deputy Chief of the Ohio Division of Mineral Resources Management, Tom Tugend, believes the Utica in Ohio is on a similar track to the Marcellus in Pennsylvania: “In Ohio, we think we’re probably where Pennsylvania was in 2007 in drilling activity. Enthusiasm is building.”

Location is Prime: Because the Utica underlies the Marcellus, much of the infrastructure that a company needs to pay for to drill is already in place. In Ohio, there is a willing and able workforce, and it is close to the dense population markets of the east coast.

Range Resources Chairman John Pinkerton calls Utica a “triple play.” He said, “A very significant advantage we’ll have in developing the Upper Devonian and Utica will be that we’ll be drilling where we’ve been drilling Marcellus wells. We’ve already incurred the cost for acreage, roads, surface location, water management, gas lines and compression. Therefore, the incremental costs to develop the Upper Devonian and Utica will be reduced by approximately one-third versus developing these zones on a stand-alone basis.”

Pinkerton said, “Because all the other shale plays are essentially single horizon plays, versus the Marcellus, where we believe our acreage holds resource potential in the Upper Devonian and Utica as well as the Marcellus, we view the 700,000 net acres we plan to develop to be more like 1.5 million acres when compared to the other plays.”

Because of the industrial past of Ohio, a lot of people have the industrial skills and background necessary to operate these wells. Thus the labor market is in place. McClendon describes the new Utica shale discoveries as potential “transformative events not only for this area but I think for the country as well.”

Chesapeake’s McClendon also underscored the location saying that the Utica is “pretty much the most ideal place in America for a new play.”

Although the future is bright for states like Ohio with these life-changing resources underneath them, there are threats to development separate from the typical business risks. Environmental groups are opposed to horizontal drilling and hydraulic fracturing, processes that enable the extraction in these unconventional shale plays. These groups claim that there is a link between hydraulic fracturing and drinking water contamination—an accusation that has been disproved time and time again. There have been over one million wells drilled in the American oil and gas industry’s history, and yet not one proven case has been found where hydraulic fracturing caused contamination. Lisa Jackson, the head of the Environmental Protection Agency, has even stated that there are no proven cases where hydraulic fracturing causes groundwater contamination. Despite the overwhelming facts, anti-development groups continue to sound off against hydraulic fracturing and demand that it be banned. If the government grants their wish list (which in reality is to stop all oil and gas development), it would stunt job creation and revenue generation, weaken the nation’s energy security and increase America’s energy dependence on foreign countries.